Best Practices for Bulletproofing Your Captive Insurance Company


Captive Tax Issues | Mark Sims | President—Global Business Development | Captive Alternatives, LLC


Mark Sims, president—global business development at Captive Alternatives, LLC, says that best practices for bulletproofing a captive insurance company so that it meets the definition of an insurance company involve consideration of five criteria, as follows.

  • Risk sharing (shifting)
  • Risk distribution
  • Premium pricing
  • Policies
  • Claims

Risk shifting and risk distribution are critically important, and one way they may be achieved is through a reinsurance captive using what Captive Alternatives refers to as a funds withheld risk reserve model. Using this model, a captive owner may have a captive reinsurance company for years and its business may never have a claim, yet every year its premium participates in all other participating captive owners' claims on a pro-rata share while meeting all of the "safe harbor" guidelines for risk sharing and risk distribution.

Premium pricing and claims handling are also critically important. Captive Alternatives recommends a number of best practices to captive owners.